Accumulate Hitachi Home; target of Rs 130: Angel Broking

Angel Broking is bullish on Hitachi Home & Life Solutions and has recommended accumulate rating on the stock with a target of Rs 130, in its August 14, 2012 research report.

“Hitachi Home & Life Science Solutions (HHLS) reported a better-than-expected top-line at `376cr in its 1QFY2013 results, which is 14.6% higher on a y-o-y basis from `328cr in 1QFY2012. The company disappointed on the EBITDA margin front which contracted by 101bp yoy to 6.8% from 7.8% in 1QFY2012 on account of higher other expenses. The net profit grew marginally by 3.7% yoy to `14cr owing to a lower interest cost during the quarter.” 

“Economic slowdown and INR depreciation to impact performance in the short term: A sluggish economic scenario has led to a fall in the demand for air conditioners (ACs) in the domestic market by 14% in FY2012. However, HHLS was able to grow at 1% in FY2012. We expect the company’s revenue to grow at 8.7% in FY2013E. However, the EBITDA margin is expected to remain under pressure in FY2013E to 3.9% due to forex losses arising from foreign currency expenses and its plans to source (ACs) from the parent company. HHLS is expected to see some relief on the interest front due to its continued efforts to reduce foreign currency loans. In FY2014E, we expect a revival in the domestic economy leading to a recovery in the company’s performance, resulting in an EBITDA margin of 6.6% and subsequently a net profit of Rs 25cr for FY2014E.”

“We expect HHLS to post a 10.7% CAGR over FY2012-14E while the EBITDA margin is expected to expand by 293bp over FY2012-14E. PAT is expected to post a CAGR of 177% over FY2012-14E to `25cr in FY2014E on a lower base of Rs 3cr in FY2012. At the current market price, HHLS is trading at a PE of 10.5x its FY2014E earnings. We recommend an Accumulate rating on the stock with a target price of Rs130,based on a target PE of 12x for FY2014E,” says Angel Broking research report.

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